Should I have a retaining wall built?
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You will have to have a wall built to eliminate any more erosion
You chose the lot, so this is what goes with it. I would not use the builder anyway, as they are generally overpriced for what you get. Hire a proper landscaper, landscape designer or stonemason. You will need to get some groundcover to prevent further erosion.
Here is how to hire a contractor.
https://www.consumer.ftc.gov/articles/0242-hiring-contractor
How is the house coming along? Everything to your satisfaction? Do not sign off until everything on your punchlist has been completed 100% and everything works! Test everything!
Would something like this work for you?
https://www.youtube.com/watch?v=_4GTLt_y4oM
most builders include some landscaping costs in their contract. see what that is and if needed, see if you can get another landscaping contractor for recommendations.
I would avoid using the builder to do the landscaping... they generally do not do a competent job... and charge a lot for it....
HomeAdvisor.com or Angieslist.com can put you in touch with a review checked, reference verified landscaping contractor that will do what YOU want, do it correctly, and probably cost less.
you need to get a veg that will hold it together. Vincca (sp?) is a nice little vine that will do the trick, but I can tell you this is a solution and a problem all in one. We have it because we liked the ground cover, but it WILL take over if you dont watch it and cut it back on regular basis once established.